The plans had been set for months. Rasheedah Harrison would host the family reunion in her suburban backyard over Labor Day weekend last year.
She was looking forward to cooking out with relatives on her patio in northwest Charlotte, catching up on time lost to the pandemic, while the kids played in the yard.
But in the weeks leading up to the party, Harrison’s rental house, two stories of white vinyl with a small garage, began to object. First the toilet downstairs began backing up. Then upstairs. Harrison and her 11-year-old daughter couldn’t flush the toilets, couldn’t turn on the faucets. If they did, brown water would ooze out.
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So Harrison did what her landlord, Progress Residential, advises when major problems emerge. She submitted a maintenance request. A crew came out and determined something was wrong with the sewer line, but said they needed permission from Progress before doing further repairs.
“That’s when everything went straight to hell,” Harrison said.
Tainted water began rising in the backyard, she said, as the plumbing problems continued inside the house. Sewage creeped up high enough to ruin her grill, patio furniture and some of her grandkids’ toys that were out back of the house, she said. Harrison has pictures showing the mess.
“We were basically living in feces all around us,” Harrison said. “You could not go in the backyard.
“They kept giving me the runaround about when someone was going to come back out.”
Just as Labor Day was approaching, with a backyard dripping in sewage and no clarity on when it might get resolved, Harrison had to call off the family reunion.
Then she complained to the North Carolina attorney general.
Progress Residential is one of about 20 institutional investors that have bought tens of thousands of single-family homes across North Carolina in the past decade and now rent them out. In Mecklenburg County, these large corporate landlords own one-quarter of all rental houses.
The industry says it has improved the home rental experience, providing safe, affordable houses that were previously inaccessible to renters. But an investigation by The Charlotte Observer and News & Observer found that the business model of these companies is finely tuned to squeeze profit out of their homes, often to the detriment of renters, neighbors or other would-be home buyers.
In the past several years, as institutional investors have continued buying up properties across the state and renting them out, formal and informal tenant complaints have begun to stack up.
Since 2017, the state attorney general and the Real Estate Commission have received at least 80 consumer complaints against large corporate landlords in the state, including Harrison’s, according to documents obtained through public records requests.
Of those, 29 complaints were made against American Homes 4 Rent, 23 against Progress Residential, 15 against Invitation Homes, seven against Conrex Property Management and six against FirstKey Homes.
Progress responded to questions for this story by saying that all the attorney general complaints against the company had been closed.
“After Ms. Harrison brought this matter to our attention, we promptly responded to and resolved the maintenance issue, and also offered a credit to Ms. Harrison, which she accepted, to compensate her for the inconvenience,” said Kate Thompson, a spokeswoman working with Progress, about Harrison’s sewer problems. “This matter has since been closed.”
While the complaints document myriad landlord-tenant disputes, a few common problems emerged: busted plumbing, broken heating and air conditioning, the near impossibility of getting in touch with the companies when things went awry at their houses and a reluctance to refund security deposits.
Luke Martin said he had few problems with the Raleigh four-bedroom he rented from American Homes 4 Rent in the three years he lived there. But when he moved out, the company balked at returning half of his $1,500 security deposit.
He had paid almost $300 to get the carpets professionally cleaned. But the company told him they would dock his deposit for an overgrown tree, untrimmed hedges and a garage door he had already reported as broken.
These and other potential charges were laid out in an American Homes 4 Rent document obtained in a public records request. The document shows a litany of items the company looks to charge tenants for upon move-out. Replacing light bulbs? $30. Worn paint? $10 for each spot that needs a touch-up. Six dollars to replace doorstops; $1.50 to replace a light switch dial.
When he complained to the attorney general, the company quickly relented, calling it a “mix-up,” Martin said. He got the sense that the company expected him not to fight back, especially when he was juggling so much during a move elsewhere.
In a response to Martin’s complaint to the attorney general, American Homes 4 Rent acknowledged that the garage charge was a mistake. The company also said it takes care to properly charge tenants when they move out.
“Great efforts are made during the move-out inspection process to ensure that charges assessed as move-out damages are for damages that did not pre-exist the tenancy of that particular tenant,” wrote Raya Swift, an attorney for the company. “Upon review, the property management team determined that the garage door charge was erroneously charged back to Resident, and therefore it was included in the reversal and refund provided to the Resident. The additional disputed charges were reversed as a matter of caution.”
A similar thing happened to Joe Marino in January 2021 when he and his wife moved out of the Charlotte house off South Boulevard they rented from Invitation Homes. They’d reported plumbing problems to the attorney general’s consumer protection office after going more than six days without a working shower around Christmas 2020 with no remedy from their landlord.
Soured on Invitation Homes, they decided to move.
“We were like, ‘We can’t do it anymore,’ ” Marino said. There were issues from the beginning, he said. He and his wife had to clean the floors when they moved in, for one. But before leaving they tended to all they were responsible for, expecting to get their security deposit back after they left.
“We did the whole thing, we cleaned the whole house. We replaced the blinds,” he said.
But Invitation Homes billed them for multiple charges. One was a carpet-cleaning fee, which was both surprising and insulting, Marino said. The house did not have any carpet, he said.
“This doesn’t even make sense, why did you charge us?” he said, recalling his conversations with the landlord. “We had to fight. We said, ‘You guys kinda screwed us.’
“They really did do the bare minimum.”
These stories and dozens of others in complaints filed with the attorney general or spelled out in interviews with tenants are more than just examples of poor customer service from corporate landlords. They fit with a profit-making strategy, according to those who study this industry.
“In addition to increasing rents, (corporate landlords) are increasing profits by creating new fees and ancillary services charged in addition to monthly rent payments,” Desiree Fields, a professor at the University of California, Berkeley, who has studied the industry since 2013, said in testimony before the Senate Banking Committee last year.
“Invitation Homes and American Homes 4 Rent are particularly vocal about the use of extraneous fees to increase total revenue.”
Delaying or neglecting maintenance and nickel-and-diming tenants isn’t a bug of the business model, it’s a feature. And you can read about it in their financial documents.
While companies like Progress and FirstKey are privately held, both Invitation Homes and American Homes 4 Rent are publicly traded. In SEC filings and communications with shareholders, the publicly traded companies stress the importance of growing revenues from tenants unrelated to rents, mainly through fees and fines.
Corporate landlords charge fees for all sorts of things, including smart locks, pets — both a one-time fee and monthly pet rent — utilities, maintenance, late fees and paying rent online, based on financial filings, corporate documents, academic research and interviews with tenants. As mentioned above, landlords also often try to hold onto as much of a tenant’s security deposit as possible.
These efforts have resulted in fee revenue vastly outpacing rental growth and the increase in the number of homes owned, according to financial documents.
From 2019 to 2021, the number of houses owned by American Homes 4 Rent nationwide increased about 8.5%, from 52,552 to 57,024. Over the same period, rental revenue was up 16.4%. Fee revenue jumped 63.8%, according to the company’s SEC filings.
In its 2021 annual report, the company acknowledged charging tenants higher fees to boost revenue. Often, the companies use terms like “other income” or “ancillary revenue” to talk about money they’re charging tenants outside of rent.
“We’re really pleased you’ve seen some really nice increases in contribution from other income this year,” Bryan Smith, chief operating officer of American Homes 4 Rent, said on an earnings call last year. “We put a pet program in place as one example, and we’re continuing to roll that out through the program. I think if you look at it from a long-term perspective, we’re very excited about the opportunities we’re going to have for ancillary revenue on the communities.”
David Howard, executive director of the National Rental Home Council, the trade group representing many of the biggest corporate landlords, said fees are often charged for extras provided by landlords.
“Maybe the fees are for services, again, that optionally offered to the residents to make living there easier,” he said.
Another way experts say the corporate landlords reduce costs and save money is by passing maintenance responsibilities to their tenants.
“They end up displacing a lot of costs of maintenance onto tenants,” Fields said in an interview with the Observer.
Reporters obtained a 2020 lease from Invitation Homes for a house in Charlotte that helps tell that story.
The contract says Invitation Homes would be responsible for anything deemed a “major repair,” including repairs to heating or air conditioning systems, roofing, mechanical, electrical and defective plumbing systems. According to the lease, all other maintenance and repairs are the responsibility of the tenant.
Compare that with the language in lease agreements used by T.R. Lawing Realty Inc., one of the biggest local Charlotte landlords.
In that document, which is almost identical to the standard lease recommended by the North Carolina Association of Realtors, the tenant is responsible only for repairs caused by “the resident’s or his guests’ deliberate or negligent misuse or improper operation” of appliances or systems.
In Invitation Homes’ most recent annual report, total operating expenses jumped about 3.8%, up to $706.2 million in 2021 from $680.5 million in 2020. Invitation notes that the increased expenses are due to owning more homes, higher property taxes and increased utility costs. But the company offset those costs by decreasing repair and maintenance expenses, the filing states.
American Homes 4 Rent did not respond directly to questions about charging fees and fines to tenants, or about the complaints to the state attorney general. Instead, the company issued a blanket statement saying it’s focused on “growing our footprint in the greater Charlotte area by building homes for the modern lifestyle and offering residents an excellent experience to expand the region’s supply of high-quality housing.”
Invitation also issued a statement.
“We offer multiple channels through which residents can communicate with our team regarding the status of their home, lease, or other issues that may arise,” said Kristi DesJarlais, Invitation spokeswoman. “We respond as quickly as we can to residents’ requests and work diligently to address issues in a timely and efficient manner. Invitation Homes is aware of the complaints filed in North Carolina and has worked with residents to resolve each of them.”
‘Throwing away money’
Some steps taken by institutional investors to save money appeal to potential renters, at least at first.
When Crystal Howard and her husband were looking for a new place in Raleigh in 2019, they didn’t have a lot of time to tour rentals during work hours. He worked a day job, and she was busy wrangling the schedules of their three young children.
That’s what made Progress Residential so attractive.
At night, with her husband off work and the kids fast asleep at her parents’ house in Henderson, they could go rental shopping in Raleigh. After texting a few details about themselves to the rental company, they got remote access to available properties on their own time.
“We didn’t need to meet with people,” Howard said. “We could see as many houses as we wanted.”
But three years later, that hands-off approach has become problematic. Howard has had trouble getting the company to respond quickly to repair requests at their rental on Cane Garden Drive in southeast Raleigh. After an initial call about a broken air conditioner, she said the company told her a fix would take weeks. When she stressed it was summer and she had an infant at home, a technician got it working the same day.
At her home in April, she told reporters she waited months for the company to fix her damaged mailbox and the garage door that wouldn’t open.
“At first it was okay. It was fine,” Howard said. “But now, I’m not gonna lie to you: I hate them. I hate them with a passion.”
And while repairs take so long, the company is quicker to pick up the phone when the rent is late.
“You could be one day past the grace period and they’ll add all types of crazy fees on top of that — which I get. They gotta get their money,” Howard said. “But if you’re gonna do that, they need to be just as diligent when I need you to come put my mailbox door back on because my mail is getting wet in the rain.”
Progress finally fixed both issues — after multiple calls and requests through the company’s maintenance website — in mid-April, telling Howard they didn’t have records of her repair requests.
Although the couple just signed a new two-year lease to lock their rent in at about $1,800 a month plus fees, Howard said she’s ready for a change. They’re planning to buy if they can save enough and find a house they can afford.
“You’re throwing away money,” Howard said. “I mean, we could be paying half of this for the mortgage.”
Not all tenants living in institutionally owned homes share these complaints.
Just around the corner from Crystal Howard, Progress tenant Donnella Williams said she’s also looking to buy. New construction is the goal — her “forever home.” In the meantime, she’s been pretty happy with Progress. She found her 1,800-square-foot rental online when she sold her townhome in late 2019. The company has been quick to answer maintenance requests, although she noted the house, built in 2014, hasn’t needed any major repairs.
The rent has gone up, from $1,515 when she first moved in to $1,740 now. And she expects it will go up again when it’s time to renew.
“The plan is definitely to go back into homeownership,” Williams said. “A $1,740 mortgage would give me more than I have now.”
Williams’ concern about the cost of rent in corporate-owned houses is shared by tenants across North Carolina and in other markets where these companies are active nationwide.
Data shows that rental prices continue rising in Charlotte. In January, rental rates of single-family homes in Charlotte were up 11.5% from the year before, increasing to a median rent of $1,716 per month, according to CoreLogic. Apartment rents are on a similar trajectory in Charlotte, also jumping 11.5% in January from the year before on average, according to Redfin.
That median single-family rent figure is well above the median rents reported to the Census Bureau, which says 2020 median rent for all housing types in Charlotte and Raleigh is $1,185 and $1,175, respectively.
The National Rental Home Council, a trade group that represents many of the largest institutional landlords, says one of the main goals of the industry is to keep housing affordable. But a recent analysis by Observer and N&O reporters of homes listed for rent by some of the largest landlords suggests they aren’t offering housing that’s affordable to North Carolina renters.
On April 28, five corporate landlords — American Homes 4 Rent, Invitation Homes, Progress Residential, Main Street Renewal and Tricon Residential — were listing 1,983 homes for rent in North Carolina, primarily in the Charlotte and Raleigh areas.
But of the 1,983 homes for rent from the institutional investors, only 33 houses were listed for less than $1,500, less than 2% of the total. More than one-third of available homes were listed for more than $2,000 per month.
The established definition of “rent burdened” is spending more than 30% of gross income on housing. With a median income in Charlotte of $65,359, according to the census, the median household would need to pay less than $1,634 per month to not be burdened by housing costs. Between five of the largest single-family landlords in the country, only 16 Charlotte homes were available at less than that amount.
David Howard, of the National Rental Home Council, maintains that his members are providing homes for affordable prices, considering they’re offering something apartments can’t.
“You have the ability to have a yard, a garage, a third bedroom, maybe a home office — that’s very appealing for a lot of people,” Howard said.
Elora Raymond, a Georgia Tech professor who has studied the impact of institutional investors in Atlanta, said the scale of the industry has had a negative impact on housing across the board.
“They haven’t created affordable housing,” she said. “These guys are trying to make as much profit as they can. If they didn’t do that … if they didn’t ignore maintenance. Then they’d be good landlords.”
Time to move on
The sewer problems made the inside of Rasheedah Harrison’s house damp. She started noticing some type of growth on the walls. Fearing mold, she reached out to Progress.
The company advised her to pay for mold testing, Harrison said. There went $600 more out of her pocketbook.
The test didn’t reveal mold, but the person who came out noted “extreme moisture” in the home. But because there was no mold detected, Progress wouldn’t pay Harrison back for the test, she said.
Progress said it had taken care of the problems and closed the case.
Harrison’s 11-year-old daughter has asthma, which was aggravated by the moisture in the home. There were certain parts of the house her daughter couldn’t stay in for very long. And she was breaking out in rashes, which made Harrison skeptical of the testing she had paid for.
“I think there’s mold in this house,” she said in a December interview. “I just haven’t called again because I don’t have $600 to $700 to spend again.”
Harrison decided she had to get her daughter out of the house. Even though her lease, $1,660 a month for the four-bedroom house, didn’t end until May, she moved out in late March.
Harrison and her daughter now live in a brand new house in the Robinson Park neighborhood of Charlotte. Instead of an institutional investor, Harrison’s name is on the deed.
As for her previous house? It’s listed on Progress’ website for $1,955 per month, almost $300 more than Harrison was paying.